Peaking prices & rosy real estate narratives

People tend to freak out when prices slow down. What’s going on? Is the market crashing? But every year around this time we start to see the market soften. Let’s talk about this, and then for those interested I have a big market update.

1) Slowing is normal: Prices have likely crested for the season in many areas of the country. What I mean there’s a good chance we’ve more or less seen the highest prices we’re going to see for 2019 as the market is starting to show its descent from the high-altitude spring season. This happens EVERY. SINGLE. YEAR. It doesn’t mean it’s not competitive either. It just means it starts to take longer to sell, the number of sales begins to shrink, and prices tend to taper.

2) The rosy real estate narrative: It can be a struggle for many people when hearing the market is slowing. It’s like we are only allowed to talk about real estate in glowing terms and our talking points must fit into a rosy narrative. So when there’s any hint of news that sounds even slightly negative, it feels like something is wrong. What do you mean prices aren’t going up? Wait, they’re softening? Does that mean the market is about to turn? Remember, just as it’s not always sunny outside, real estate isn’t always burning hot either.

3) The mistake of misinterpreting slowness: On the other side of the coin we tend to see lots of doom and gloom conversations around this time of year as the market softens. My advice? Know what is normal for the fall season so you can assess whether it’s a normal seasonal slowing or something more. In other words, let the stats speak to you and inform your real estate narrative. Otherwise you may be swayed by sensational headlines or get sucked into a real estate culture that sometimes struggles when things aren’t ultra-positive.

Any thoughts?

—–——– Big local monthly market update (long on purpose) —–——–

Now for those interested, let’s talk about Sacramento trends. If I had to sum up the market I’d say things have felt a little more normal lately. Granted, low mortgage rates are like a steroid helping the market feel normal, but nonetheless stats have been about what we’d expect for this time of year – which is unlike the dark season we experienced last year at the same time.

Normal and cresting prices: We’re seeing about what we’d expect to see right now with prices starting to soften. I’d say prices have likely crested for the season. It’s possible we could see some price metrics bounce up slightly due to low mortgage rates, but that usually doesn’t happen beyond August much. Besides, any sales from September really reflect older pendings from July and August anyway.

Rent control: Statewide rent control in California was just passed by the legislature. There is going to be a learning curve for the real estate community on how to deal with this from a value perspective too. We may need years to really understand the effect on the housing market. Keep in mind this only applies to 2-unit+ properties built prior to 1995 (it does not apply to single family homes). Also, this doesn’t mean rents won’t increase either because landlords can legally raise rents 5% plus inflation each year.

14th bubble anniversary: The real estate “bubble” popped fourteen years ago in Sacramento in August 2005. In other parts of the country the market started to turn in 2007, but we started to tank in 2005. So happy anniversary, I guess.

Michael Jordan’s house: In 2012 Michael Jordan’s house was put on the market for $29 million and after seven years it still hasn’t sold. It’s now listed for about $15M. This just goes to show buyers aren’t willing to pay any price – even if the owner is famous. This is a great object lesson for sellers today who are prone to think they can command whatever price they want since inventory is low. Nope. Buyers are extremely sensitive to paying the right price and they’re more informed than ever. If you want to sell you need to price it right. Bottom line.

Slowing doesn’t mean it’s cold: The market isn’t slow, but it’s starting to show signs of slowing for the season as it’s taking longer to sell, most price metrics declined from July to August, and sales volume looks to be starting to slough for the year as it normally does. This doesn’t mean the market is cold though. Not at all. It’s just not as hot as it was during the spring. Over the next month I’d expect the market to heat up a bit though since kids are back in school and vacations are done. There is usually a last run on the market before the holidays arrive.

Almost 8 years of price increases: In the current real estate price cycle we’ve had about eight years of price growth so far. When I say eight, some people correct me with seven, but that’s not accurate if you count every year since 2012. I also have a chart like this for Placer, Yolo, & El Dorado County in my monthly download.

Stronger price growth: Prices are up about 4-5% from last year, which is a change from a more subtle 2-3% we’ve been seeing for most of the year. What’s going on? Part of the growth could stem from low mortgage rates fueling buyers to play the game, but let’s remember too last year was a dull time in the market, which means it’s going to be easier on paper this year to see glowing stats (more on that below). Let’s not make too much of one month of data.

Really sparse listings lately: The number of listings has been noticeably down. I mean, we’re seeing multiple hundreds fewer per month these days. Technically housing inventory as a metric is on the lower side of normal these days, but there have been fewer listings hitting the market (remember, inventory as a metric measures the relationship between listings and sales rather than the number of actual listings). I’ve been thinking about what’s going on here for a number of months and I’ll admit I don’t have it all figured out. Part of it of course is pendings have been stronger, which naturally means there’s fewer available listings. And maybe some would-be sellers refinanced into a lower rate rather than selling. I don’t think this is the byproduct of the iBuyer model with so many listings selling privately instead of coming to the market, but some properties certainly sold this way. Mostly I would guess this is related to sellers feeling uncertain about the market. Just as buyers had their moment last year where they backed off the market a bit, maybe sellers are feeling it’s their turn? There could be other reasons. This is something I’ll keep watching to understand over time. I’d love to hear your take here.

Warning about glowing stats ahead: Hey stat nerds, this is important. Over the next few months if we have fairly normal numbers they could end up looking glorious since last year the market was in a slump. If you remember, when mortgage rates shot up in 2018 buyers began to put their foot on the brakes and it felt like there was a dark cloud looming for about six months. Anyway, when you’re pulling stats over these next two quarters, just remember the numbers might technically look glowing this year compared with last year. My advice? Take stats with a grain of salt and compare multiple years of data rather than give laser focus to last year.

I could write more, but let’s get visual instead.

FOUR ISSUES TO WATCH:

1) SLOWER GROWTH: The market continues to show price growth, but the rate of change is slowing. This sounds offensive to some because the narrative in real estate is often that the market is always blazing hot. But let’s remember “slow” is not a dirty word in real estate.

2) A QUICK RECAP: All year prices have shown a modest uptick at about 1-3%, but this past month the stats look a bit sexier. Part of this could be due to lower mortgage rates, but some of it could be due to the market showing weakness last year (which helps pad today’s stats).

3) VOLUME SLUMP: Volume was lower last month compared to August 2018, but not by much. The bigger story though is volume is down in the region by 9% over the past year. Moreover, volume has been down in the region for 14 out of the last 15 months. Overall despite a lower year of volume, it’s still not outside of a normal low range (see 2014 and 2015).

4) PRICES SOFTENED IN AUGUST: The market generally slowed in August in terms of price growth. This is why I’m saying prices feel a bit flat (even though they’re up from last year). This is fairly normal for the time of year, and sometimes we see prices bounce up and down as summer comes to a close. Stay tuned. Let’s keep watching.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

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Reader Interactions

Comments

Great post, as always Ryan!
My thoughts on the fewer listings: 1. People are staying in their homes longer in general. 2. Would be move up (or down) buyers are hesitant to list their homes for fear of not finding the right replacement property. 3.Some are choosing to stay and renovate rather than move. Case in point – My husband and I bought in Jan 2013. We have a lot of equity and a killer interest rate. We thought about moving for a while and got really close to pulling the triger earlier this year but when we ran the numbers, it was just not worth it when taking into account the increase in property taxes alone. We decided to do some updates and redo our backyard, adding a pool (which I desperately wanted.) In the end, it was still less expensive for us than moving would have been.

Thanks Erin. That’s excellent insight and I totally agree with this. I see this happen all the time. Congrats on the pool too. It is incredible how low rates are keeping sellers in their homes. There just isn’t as much incentive to move.

In terms of the dynamic I mentioned I’ve noticed less listings in the region as a whole, but I’ve also observed Sacramento County is showing this dynamic but not Placer. There is more here that I’ll have to unpack. It really could just be more pendings over the past 3-4 months, but my curiosity is piqued and I’m wondering if this is more. We’ll see.

I just want to say thank you so much for your blog. I’m a new Realtor. I’m making it a point to study the Trends on MLS. Reading your blog is really helpful in my understanding the market. It gives me confidence to talk to people about what’s going on in our area’s real estate in comparison to every day life and our culture. Thanks again, I appreciate you.

That’s so cool Julie. Thank you very much. It’s encouraging to hear this. Good for you. Keep up the good work and become fluent in market trends. That’s always my goal. We’re all learners. Please do reach out whenever too. You can always call, text, or email.

Thanks Gary. Haha. Yeah, I want to be like Mike too (except when it comes to pricing homes). Hope all is well. Hey, we’re going to have to compare notes at some point since I know Oregon has rent control. We’re joining that club too as a state.

Thank you Ryan for all the great information. I’m in El Dorado County and our biggest focus this year has been fire insurance which has been a challenge for many. Definitely seeing some changes in our market in outlying areas. Many of my clients are headed out of California. Your insight on market is great and helps me in talking to my clients thank you.
Cynthia Harkey Lyon Real Estate

Thank you so much Cynthia. I appreciate your kind words. I hear you on fire insurance. It’s a big deal. I’ve noticed housing inventory in El Dorado County has been generally increasing while the rest of the region has been shrinking. More expensive insurance has to be playing a part to a certain extent, though I need to find the time to really dig into the numbers.

Migration out of the state is no joke. It’s astounding how many people are leaving. It seems like quite a few Facebook friends even are doing posts such as, “Hey, this is my first day as an Oregon resident!!”

I like your comment about a rosy market, Ryan. The real estate cycle, especially when looking at it annually, is going to be cyclical and it is okay to point this out. What I find annoying is when some agents always paint the rosy picture without recognizing that this is happening but it is typical and this is okay. This would in fact help determine your sales strategy for selling a home. Let’s call it what it is rather than gloss over it without addressing the issues.

Thanks Tom. It’s easy to gloss over trends or try to explain them away. It almost feels wrong to say the market is slow. But being in touch with the market and explaining it the way it is helps people make informed real estate decisions.

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